Monday, October 17, 2005

Housing market bubble-blues

A few of our friends [including yours truly] are currently looking at getting into a new home. Yeah, while the interest rates are still low, might as well - right? I have voiced my opinion in the past discounting the supposed bubble and claiming that if you wait for house prices to go down by 20%, you will be waiting for a long time to buy a house. While I am still not taking back my reservation about housing prices tumbling down (reminds me of the fake news paper headlines from "One up on Wall street - PeterLynch), I am reading more and more reports of a "peak" having been reached. Having sold my own home very close to the "peak" - unknowingly off course - I have to beleive some of the reasons behind their arguments.

My arguments in support of the claim that there will not be a housing bust anything close to the internet stock bust of 2000, have been based on the fact that the evidence to support significant percentage of speculative home buying for investment purposes is simply not there (see my comments on the State of the Nation report in June on this blog). The contrarians' on the other hand argue that it doesn't take speculative buying for the market to peak. Unsuspecting "new" home owners lured into houses they cannot afford at "interest only" loans can just as well cause the housing bubble. What's more serious - to me at least - is the cheerleader effect! Let me explain. In the internet/tech stock boom era, there were analysts and brokerage companies providing fuel to the fire but publishing sky high out of this world ratings and growth rate projections of the same stocks that eventually tumbled. In this current run up of housing prices, this job has been carried out by Real Estate Agents. There has been reportedly more influx of new, inexperienced, real estate agents in this community partly fuelled by the initial housing price increases. Thus it has become a self feeding frenzy - housing prices go up, attracts new realtors applying for new licenses, results in inflated pricing, and so on. All along, it has been in the interest of realtors to ask and bid for higher and higher home prices consistently. Indeed, Realtors have been cheering the ascent of house prices. This is serious, considering the inexperience and impatience of new realtors. As supply exceeds demand, (which already seems to have begun in some markets), these new realtors and the sellers they represent are going to face the reality that their sky-high asking prices cannot be fullfilled by buyers. Eventually they will recognise that they must reduce their listing price. When a noticeable trend like this is set in place, the inexperienced realtors can very well easily move in a herd to outsell other properties at lower prices, ensuing a price war and a house price collapse. Given, this is a highly judgemental call on the quality of recently licensed realtors, but one must remember a similar euphoria led to the fall of dotcom stocks.

All said, I continue to beleive that there will be no cutbacks in housing prices of the order of (or even close to) the fall of dotcom stocks in the bust of 2000. However, I am keeping a close watch on how these things develop. I am also planning to look into foreclosed homes and buying and selling of foreclosed homes as a business activity. For more on the housing market you can start by reading the Contrarian Chronicles on MSN Money Central and follow like minded links at the bottom.

Thursday, October 06, 2005

HG - Interview with Aswath Damodaran, Author of "Investment Fables"

Very nice interview by Tom G of Aswath Damodaran. They go over a host of basic investment stuff and he (Aswath) basically nails it everytime. If you want to get your funda's cleared (once again), this is a must read. I am going to check out the book one of these days.

Tuesday, October 04, 2005

How to lower the price of gas

I found this link when reading the link Pankaj posted to Mark Cuban's blog. I think it is interesting on how simple his take is, and how objectively he can look at things. The more I read articles by these CEO's I feel that the main advantage they have is the clarity of thought - the ease with which they can think through a given situation to the possible ends, and make the best possible decision at that moment in time. Mark Cuban is one such guy - He might appear like a goon on the NBA circuit always getting into trouble with the league, but I watched him a couple of times on CNBC on the Squawk Box, and that guy is no accidental dot-com billionare.

Excellent post on UPL on yahoo boards

I thought I should share this with you. This was a rant against the nincompoops/short sellers/pumpers on the yahoo UPL message board...

I haven't posted here in several months, but the latest assault on intelligence on this board has drawn me out of my silence. There is no reason to surrender to the level of ALLCAPS "sellatbid" types, who apparently operate with minimal literacy and identifiably poor command of language under several Yahoo nicknames. Ignore. Don't reply. He/they/it will go away. Feed him with replies to his numbskull nonsense, and he'll be energized for another round. Some mighty smart people seem unable to resist the temptation to reply. To each his own.

There is every reason to stop a moment and review (a) where we have come from -- and why?; (b) where we are going -- and why?; and (c) does a day, or a few days, of pause or pullback justify any concern at all?

(a) Look at a 5 year, 2 year, 1 year or six month chart. Even a one month chart tells the same story -- that you are very, very fortunate to be long UPL. We have come a long way, very quickly. Even if you just got into Ultra this summer, you are far, far ahead of anything the big brokerage houses and stock market gurus preach about the need for diversification, spiders and index funds. So, why are you worried about a small pullback on some profit taking? Never develop an Investor's Business Daily attitude about "tight stops" with Ultra. It might work in some stocks, but all that philosophy will do for you here is make you lose your shares and miss out on the next big run-up. The winning philosophy with Ultra is disarmingly simple: Buy. Hold. When you get more money, buy more. It may not be be "fun" like hitting the craps tables, getting free drinks and whooping it up when somebody rolls well -- but as Mr. Yarber posted today, this is investing, not gambling. Ask youself if you're investing or gambling. Then -- why have we come so far to date? See bobw's succint and impeccably researched recaps of Ultra's fundamentals. These fundamentals include shrewd acquisition of drilling rights to an ocean of natural gas -- not in some remote and politically unstable Maniac-istan, but right here is Wyoming (well, that state did produce Dick Cheney, but that's another topic, and not one to debate here of all places). Combine that incredible asset -- Pinedale -- with the very best management (featuring first and foremost integrity, then excellence in execution, add to it a conservative reserve booking rule, and you get fantastic results with the lowest drilling costs in the industry, delivered by people you can trust with your money). The recipe for success was there long before we saw a spike in natural gas prices. We have come so far because this company has all the right ingredients for success and has executed on its business plan in a manner that analysts are just beginning to recognize.

(b) We're going to keep going up -- maybe not this week, but over time, and for years to come. The stock will split and hit $60 again before another year is out -- and that may be conservative. Why? Same reasons. It all comes down to unparallelled assets being managed by exceptional professionals, in a market that increasingly values the product we produce. Yes, this stock's Price-to-Earnings ratio is high and it will compress -- but not because the earnings will go down or the stock price will fall. It will compress because the earnings are going to be so huge that the stock price, while rising steadily, just won't keep up. Look for a double at a minimum over the next year and continued fantsastic growth for many years to come, until someone with a household name buys the company. Do you want to miss that moment, whenever it comes?

(c) Does a pullback matter? No. It's inevitable; people and companies take profits. it presents buying opportunities; it will be brief and soon forgotten when Mr. Watford and his team announce this quarter's results and tell us what is in store for the next.